posted
The two leading nationally circulated newspapers have covered the story that CSX and the Canadian Pacific are considering a merger; as such,there must be some substance to it. Here is coverage from The New York Times and The Wall Street Journal:
It could also provide a big victory for the activist investor William A. Ackman, who joined Canadian Pacific’s board after a contentious proxy fight and whose hedge fund, Pershing Square Capital Management, has a big stake in the company.
Canadian Pacific, with a market value of about $32.5 billion, has rail lines that stretch across Canada and into the United States. CSX has a market value of about $30 billion and controls a network of lines throughout the Eastern United States.
With minimal geographic overlap, the two companies would have a huge combined footprint. But there are potential obstacles to a deal
Canadian Pacific Railway Ltd. has approached CSX Corp. about a combination that would unite two of North America’s largest railroad operators, according to people briefed on the matter.
The overture, made in the past week, was rebuffed, the people said, and it is unclear whether the Canadian company has shelved the effort.
A deal between the two companies would give rise to an industry giant with a combined current market value of some $62 billion and, potentially, an increased ability to take advantage of the North American energy boom.
Since BNSF/CN went nowhere, let's examine how this "Chessie and Beaver" proposal differs. The main difference I see is that BNSF/CN would have eliminated one competitive Transcon route. Agricultural shippers in the Dakota presently have competitive routings, of sorts. If SOO (CP) is not providing adequate service, then there is BNSF. A merger of those two would have left shippers without the competitive routings, again of sorts. This is not an issue with a CP/CSX combination.
Now let's look at crude; that which originates presently on the SOO would enjoy single carrier service to any East Coast refinery or transloading facility such as Albany. There would be additional opportunities to establish transloading at a Tidewater port, especially if coal traffic continues to diminish. This would become important if export restrictions on US crude were to be relaxed so that Europe would have sources other than "Vladimir the Great".
But I personally hold (but DO note the disclaimer) that an oft discussed CP/KCS proposal would be a more attainable expansion into US markets for CP. The "Surf Board" (STB), in that they allowed CN/IC, would be hard pressed to disallow the other major Canadian road to establish the "T-Bone" allowed to "the other guys". But KCS represents a more arduous route to the Gulf with over hill over dale of the Ozarks. Of course, IC, even with its "Mississippi Delta rolling down to the sea" route must compete directly with barge traffic on "Ol' Man River", but then water and pipeline traffic cannot be diverted as readily as can rail. In addition to serving Chicago over "my" MILW, KCS also has a Kansas City interchange not enjoyed by CN/IC.
The CP/CSX proposal may have no more shelf life than did CN/BNSF; but if it does it will indeed be interesting to watch.
disclaimer: author holds long positions CSX KSU UNP
Posts: 9976 | From: Clarendon Hills, IL USA (BNSF Chicago Sub MP 18.71) | Registered: Apr 2002
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quote:Originally posted by Gilbert B Norman: [i][list] [*]It could also provide a big victory for the activist investor William A. Ackman, who joined Canadian Pacific’s board after a contentious proxy fight and whose hedge fund, Pershing Square Capital Management, has a big stake in the company.
When I see stuff like this I do nto get a warm fuzzy feeling. I see someone that could well be looking toward sucking all the cash out that he can and then dumping the husk before others figure out what he has done. Givven the huge capital involved in railroading and that large maintenance expenses can be deferred and the result take years to become apparant this sort of thing can be readily done.
We have to have people that want to run a railroad, not seek instant financial gratification.
Posts: 2808 | From: Olive Branch MS | Registered: Nov 2002
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posted
By now, anyone reviewing this topic is aware that any CP/CSX combination is dead.
What I am at a loss to understand is that if "Jager" knew this merger proposal would be dead on arrival, why did he ever propose it?
The "one day pop" went to the other guys; not to his corporate raider consort.
I can see how he made the comment that a CP+KCS combination would be "very expensive". As I noted opening this topic, I would think that Surfboard would be compelled to go along as they permitted CN to form a "T-Bone" system that, on paper, CP+KCS would emulate. However, KCS does not enjoy a "from the Mississippi Delta rolling on down to the sea" route of the IC, but rather an "over hill over dale" through the Ozarks. Further, much work would be needed to the MILW Chi-KC (CP has some kind of trackage over such) in order for it to become a contemporary road. While both roads serve New Orleans, I would guess more ocean traffic is available through Mobile (IC) than Port Arthur (KCS).
Who knows what effect a merger would have on KCS-M (NdeM); would a merged KCS retain the franchise to be the operator of such? Even in a post-PANAMAX environment, the port of Lazaro Cardenas, Mich, which KCS-M has sole access to, could provide lower costs (Does Estibador Jose make the same pesos as does Longshoreman Joe bucks?) and maybe even competitive with Trans Canal (those tolls ain't gonna be cheap; better have your EZ Pass filled up). But in order for Lazaro Cardenas to have any potential the Federales and the Bad Guys will have to limit their shootouts to episodes of "The Bridge".
disclaimer: author holds long position KSU (has done very well)
Posts: 9976 | From: Clarendon Hills, IL USA (BNSF Chicago Sub MP 18.71) | Registered: Apr 2002
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